NEW YORK (CNNfn) - This has been a sobering year. Computers didn't falter because of the Y2K bug – but the whole computer-based economy did. And the markets reminded investors that what goes up doesn't go up all the time.

Entering the new millennium, stock trading was the unofficial national pastime. Now, plenty of people have turned their backs on the market. Maybe ignorance is bliss after all. And what can you do now, anyway, you might ask?

You're not alone. Numerous investors are caught in the headlights of an economy grinding its gears. According to financial planners, sometimes doing nothing might be the smartest move. But this down market calls for some tough decisions, even if it's to leave well enough alone.

If you just keep going up, you lose your perspective.

Phil Cook

Investors have until Dec. 29, a Friday, to realize losses and offset capital gains. Now is the time to make sure your regular and Roth IRAs are fully funded. Run a comparison of assets and liabilities, said Eileen Dorsey, a certified financial planner and president of St. Louis-based Money Consultants Inc.

The end of the year is a good deadline. Now, when you might be at your gloomiest, is the most obvious time "to make sure things are still positioned correctly based on your needs and risk tolerance," she said.

A silver lining in a very dark cloud?

Some investment advisers welcome the change in the market's fortunes.

"If you just keep going up, you lose your perspective," said Phil Cook, a certified financial planner in Torrance, Calif. After nine years of higher closes for the Dow, and sometimes spectacular returns for the S&P 500, he believes a dose of realism is healthy. "It just helps remind people. It gets their head straight."

Still, Cook is optimistic about returns over the next two, three, five years. He points out that earnings and economic growth is slowing – but it's still growth, and it hasn't stopped.

"Would I like to see the market go up every year? Absolutely. It's just not going to happen," he said.

VALUE TRUMPS GROWTH

Value made a comeback in 2000. Value managers were ridiculed for years. No one is laughing now.

Not every asset class, or sector, has performed badly, of course. Traditionally defensive sectors such as utilities and health care scored the greatest gains. Insurance, pharmaceutical and real-estate indexes all posted gains of greater than 25 percent in 2000.

And value, value, value made a comeback. A joke developed over the last three years, as growth stocks roared away. "How much does a value-fund manager weigh?" the joke went. "Ten pounds including the urn." No one is laughing now.

Overexposure is a real threat

Is it time to chuck in all your techs and put it all in Philip Morris (MO: Research, Estimates)? Hardly. Techs were the rage, and investors used to say this was the "new paradigm." Now value is in. But it's also abundantly clear that all rages end.

Investors who have found themselves stuck with an exclusively tech portfolio need to rebalance, according to many certified financial planners. Techs may regain their luster eventually, as they have in the past after a downturn. But it may take years, and techs will always be extremely volatile.

With techs, "The horse is out of the barn, OK?" Cook explains. "Well, fine. Does that mean you sit there and leave the barn door open, waiting for the horse to come back in?"

Small-cap and mid-cap focus

Cook recommends that clients scour their portfolio for their most expensive stocks with the highest price-earnings ratios. Buy and hold is still the strategy to follow. But he thinks that, with a slowing economy, it will take techs and other expensive growth stocks a while to return to their former glory.

"I would come out of the highest P/E tech stocks and look for where I can get maybe some above-average returns in other areas," he said. For growth addicts, he said small-cap growth stocks are not as richly priced. Because small caps are hard to pick, he would stick with a mutual fund.

Cook, like many planners, also is telling his clients to overweight mid-cap stocks. "I just think there is more value there," he said.

The S&P 400 Mid-Cap index ran up 12 percent this year. So some of that value has already been realized. But Cook believes there is more room to grow.

Don't chase the high flyers

One mistake many investors make at this time of year is to devote too much attention to high-flying sectors and asset classes. It's tempting to compare your returns with the best-performing indexes and funds. But be realistic in evaluating how your portfolio performed, planners say.

Cook tries to blend index returns based on his client's asset allocation, rather than comparing portfolios just with the Dow or Nasdaq. If they are 40 percent in mid-caps, he thinks it makes sense to give the S&P 400 Midcap index a 40 percent weighting for a benchmark.

Slow and steady wins the race, says David Dresbach, a certified financial planner in St. Paul, Minn. The returns of this 10-year bull run have been very, very good. One bad year doesn't undo it all. Remember the downturn in 1998, when Asia, then Russia went down the tubes? Didn't think so.

"The problem is, we compare ourselves to averages, or whatever is hot now. Say I was looking for double-digit returns on portfolio for the last 20 years. I was looking for 12 [percent], I got 16, and I feel bad because the S&P 500 did 20.

"What are you worrying about? You won," he says.

Bigger 'bets' for the aggressive

It is hard to generalize about investing strategies. Young investors with years ahead of them can probably sit on a tech portfolio that's showing losses now, knowing it will eventually come back. "When" is the opportune question.

"For the aggressive person, now is the time to think about making an extra bet there," Dresbach said. If and when those staples of the growth boom rebound, they will likely produce impressive gains, he said.

For instance, Dresbach bought Oracle (ORCL: Research, Estimates) in the spring of 1999. Its price was depressed by fears companies would divert spending from database products to spend on Y2K.

He thought that was a short-term argument, and he was right. He now has split-adjusted basis of around $7 on a $29 stock.

But why be first?

First in gets the biggest gains. But perhaps you are sick about hearing about buying opportunities. Or your nerves won't hold.

Planners, who tend to be cautious by nature, say individual investors should remember being cautious never hurt anyone.

Cautious investors who wait for signs of a rebound in the market will miss the greatest returns. But they can still participate once a rebound sets in, Dresbach notes. And they pass the "sleep test" while they wait. No waking up screaming about Cisco losing another 14 percent in a day.

Older investors who will need to draw on their holdings in the near future have a right to be anxious, planners say. But they should not be overly invested in techs in the first place.

Certain planners say some older clients got greedy in Nasdaq's heady run. They chased returns. "This time it's different," was the mantra. But of course it isn't.

Investors should now know their risk tolerances. "A lot of people new to the markets are totally shellshocked," noted Scott Kahan, a certified planner and president of Financial Asset Management in New York. Buying on the dips – a great strategy for much of the last two years – hasn't worked well since April.

Time for balance

Scared investors need to go back to the drawing board, planners believe. Many like to sit down with investors to develop an asset-allocation plan and never stray from it. Yes, you miss out on a huge run in techs. So did Warren Buffett. But neither you nor he has to suffer on the way down, either.

Make sure you are balanced between large-cap holdings, small-cap holdings, with international exposure thrown in, said Roy Diliberto, president of the Financial Planning Association and of RTD Financial Advisors in Philadelphia. Pick up bond exposure if you are conservative or an older investor.

"Maintain that discipline and balance on a regular basis," he said. Only if your needs change do you need to change your allocation, he continued. At regular intervals, sell some of your best performers and move that money into asset classes that have underperformed, he counsels.

"We've got some losses as well," he conceded. "But we are not experiencing anything like many people who have chased those returns."

Asset allocation means taking the good with the bad. For years, Diliberto held real estate when it was out of favor. He had investors write to him, telling him value would never be back.

He continued to split his holdings, 50 percent value, 50 percent growth.

"It takes a full business cycle for people to realize why asset allocation works," he said. Maybe they never learn. "Our clients this year are asking why we're in growth."